U.S. entrepreneurship really needs a kickstart. Here’s what we can do
August 2, 2018 | Blog

U.S. entrepreneurship really needs a kickstart. Here’s what we can do

The United States is awash in venture capital and private equity dollars, a clear indication that investor demand for startups remains as strong as ever. But supply is increasingly falling behind demand.

Overall business creation today remains far below levels before the Great Recession, according to the U.S. Census Bureau. In addition, new companies with the best chances of becoming job creating businesses have flattened out around 310,000 a quarter as of first quarter 2017, compared to 350,000 to 400,000 a quarter a decade ago, the agency said earlier this year.

“Overall, business applications that have relatively high likelihood of turning into job creators have not fully recovered after the Great Recession, and their quarterly volume is still far below its pre-recession levels,” the Census Bureau report said. “There is recovery in the quantity but not so much in the quality of business applications.”

So not only we are creating fewer companies but also fewer high quality ones. The two statements are related: the more companies we create, the greater the chance some will succeed.

Here are 3 ways we can boost the number of startups:

Encourage more university startups The United States boasts top notch research institutions, including universities and colleges, that often produce intellectual property that can be converted into companies, a process known as tech transfer.

But aside from Stanford and MIT, few schools know how to do tech transfer well. One problem is that several schools want to impose excessive control over people who invent IP on campus or outsiders who want to build companies around it. In Minnesota, where I worked for a decade, the University of Minnesota and especially the Mayo Clinic had reputations for being particularly unfriendly to entrepreneurs.

Judging from the numbers, schools seem more interested at winning patents and generating licensing income than starting companies. In 2016, the most recent available data, universities launched 1,012 companies, just 1.1 percent more than the previous year, according to data from the Association of University Technology Managers. By comparison, patents increased 5.1 percent while licensing income jumped 17.5 percent. Starting a company is no doubt difficult. But given the tens of billions of federal research dollars universities receive each year, we should be getting more bang for our buck.

Universities are sitting on a sizable stash of IP; we must find out better ways to unlock it. Schools can help boost entrepreneurship by streamlining their tech transfer programs to make it easier for people to start businesses, even if that means they give up some financial control. And schools should encourage students from all disciplines, not just science and engineering, to create companies.

Create a safety net for the 1099 workforce Some people argued that the emergence of the Gig Economy would boost entrepreneurship. Working for on demand car or food delivery services would give people a flexible schedule to start companies while earning some cash on the side, the thinking went.

There hasn’t been a lot of research on this topic but one study undermines the theory. A recent paper from the University of Minnesota’s Carlson School of Management found that over a 36-month period, the number of Kickstarter projects on average fell 14 percent once a major ride hailing company entered the market. That translates into a drop of $7.5 million in funding requests.

Instead of performing gig work part time, the study suggests that people are devoting most of their time to on demand work and focusing less on starting companies.

“On the one hand, gig-economy employment might provide individuals with flexibility and resources that enable them to engage in the creation of a new venture, thus increasing total entrepreneurial activity,” the study said. “On the other, the presence of gig-economy platforms may provide a desirable employment alternative for would-be necessity-based entrepreneurs, thus reducing total entrepreneurial activity.” In expensive places like San Francisco and New York, people might find it hard to start businesses because they can’t support themselves just on part time gig income. One solution is to offer these 1099 employees (the tax form contract workers file is called a 1099) a security net of sorts so they can feel more confident to start a business.

Steven Hill, a former Director of the Political Reform Program at the New America Foundation, offered two ideas in his book “Raw Deal.” The first is something called a multiemployer plan in which companies that frequently hire 1099 workers pay into a fund to help pay for their health care costs. Companies could also contribute to Individual Security Accounts, in which employers would pay into each worker’s account a pro-rated amount to subsidize benefits like paid sick days, vacation and holidays, based on the number of hours people worked or a percentage of gross wages.

Providing some kind of cushion for 1099 workers might encourage them to pursue that business idea instead of working on demand jobs full time to make ends meet.

Reduce student loan debt for Millennials In 1996, people between the ages of 20 and 34 accounted for 34.3 percent of entrepreneurs, the largest of any age group, according to the Kauffman Foundation. Nearly two decades later, that number fell 9.3 percentage points to 25 percent.

And despite years of social and economic progress, women have also seen their share of entrepreneurs decline during this period.

One possible big reason: student loan debt.

Outstanding student loan debt currently stands at $1.5 trillion, with 20 percent of loans in default. Nearly two thirds of that debt belong to women, according to the Association of American University Women.

The Brookings Institute earlier this year released a report that concludes escalating costs of higher education has forced students to take out even bigger loans over the years. In 1990, fewer than 5 percent of borrowers had loan balances above $25,000 and almost no borrowers had loan volumes above $100,000. By 2015, more than 40 percent of borrowers had balances above $25,000 and more than 5 percent of borrowers had loan balances above $100,000.

The impact on entrepreneurialism seems clear. Faced with such debt, you’re probably more likely to get a job to pay off those loans than start a business that might pile on more debt.

Should Congress provide some relief to these borrowers, that could make it easier for people to start companies. Perhaps the federal government would agree to forgive some loans should a person launches a business that employs x amount of workers over x period of time.

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Any securities offered are offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative and involves a high degree of risk. It should only be considered as a long-term investment. You must be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and you should complete your own independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or other investment advice.

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Thomas Lee

Thomas Lee

Thomas Lee is the Senior Writer at SharesPost. He was previously a business columnist at the San Francisco Chronicle. Lee has written for the Star Tribune in Minneapolis, St. Louis Post-Dispatch, and Seattle Times. He is author of “Rebuilding Empires” (St. Martin's Press), his book on the future of big box retail in the digital age.
PLEASE READ THESE IMPORTANT LEGAL NOTICES & DISCLOSURES

CONFLICTS

This report is being published by SharesPost Research LLC, and distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation and SP Investments Management, LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc.

Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own personal financial advisors before making any investment decisions based on this report. None of the information contained in this report represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.

This report does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or advisability of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.

ANALYST CERTIFICATION

The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about any and all of the subject securities or issuers, and that no part of such analyst compensation was, is, or will be, directly or indirectly related to the specific views contained in this report.

Analyst compensation is based upon various factors, including the overall performance of SharesPost, Inc. and its subsidiaries, and the performance and productivity of such analyst, including feedback from clients of SharesPost Financial Corporation and other stakeholders in our ecosystem, the quality of such analyst’s research and the analyst’s contribution to the growth and development of our overall research effort. Analyst compensation is derived from all revenue sources of SharesPost, Inc., including brokerage sales.

DISCLAIMER

This report does not contain a complete analysis of every material fact regarding any issuer, industry, or security. The opinions expressed in this report reflect our judgment at this date and are subject to change. The information contained in this report has been obtained from sources we consider to be reliable; however, we cannot guarantee the accuracy of all such information.

Any securities offered are offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative and involves a high degree of risk. It should only be considered as a long-term investment. You must be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and you should complete your own independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or other investment advice.

Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright SharesPost, Inc. 2019. All rights reserved.